Summary for the 6th of March 2019


The ISM Non-Manufacturing PMI increased by 3 points to 59.7 in February, higher than the market had expected. Markit Eurozone Services PMI got revised up by 0.5 points to 52.8 in February. Markit/CIPS UK Services PMI rose by 1.2 points to 51.3. Also, the PMI in Switzerland and Japan also rose. The same index for China ( Caixin China General Services PMI) fell by 2.5 points to 51.1.

BIS’s quarterly review reports that the events at the end of 2018 in the financial markets highlight two features of the economic and financial landscape. One, in the background and little noticed except by practitioners, is the change in the day-to-day functioning of financial markets since the Great Financial Crisis . Financial regulations, unconventional monetary policies and fragmented financial markets have made the theory of covered interest parity to be broken as observed by much larger spikes in interest rates at quarter- to year-end and that uncollateralised rates for overnight transactions among private sector are at below the risk-free rates on central bank deposit.

The other, in the foreground and commanding widespread attention, is the close interaction between central banks and markets. Financial markets scrutinise central banks' every word to get a hint about which direction the monetary policy is heading. Central banks, in turn, scrutinise financial markets to better understand what the expectations of the economy are, as markets both reflect and influence activity. This interaction helps explain the Federal Reserve's recent patience in its monetary policy.

BIS also reports that the intention behind ECB asset purchasing program was to persuade investors to take more risks by investing in other kind of assets than the government bonds. This intention, however, didn’t turn out as expected. The review finds that non-bank financial institutions located outside the euro area were active sellers of government bonds, and the proceed was deposited in banks outside the Eurozone, mostly in the UK. The Bank of England has thus warned that a Brexit with no deal would have large consequences, due to the financial regulations would be changed overnight and the uncertainty would rise greatly.

Indices for 6th of March:
Dow: -0.1% (5th of March)
S&P 500: -0.1% (5th of March)
Nasdaq: About the same (5th of March)
Nikkei: -0.5%  (6th of March)
Chinese indices: +0.9% (6th of March)
STOXX Europe 600 Index: -0.04% (6th of March)

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